Non-Parametric Tests
A simple test of equality of opportunity is to check whether the retirement age dis- tributions differ between individuals with different circumstances. If so, this points at differences in the timing of retirement which are beyond individual responsibility. Assume two retirement age distributions A and B and their cumulative distribution functions (CDF) FA(r) and FB(r). Then, A dominates B at first order if and only if
FA(r) ≤ FB(r) for any retirement age rj = {r1, r2, ..., rk}. We apply the first order stochastic dominance concept using three different categories of circumstance variables to divide our sample, namely, personal characteristics, socio-economic background, and urbanisation of area of residence during childhood. We test for equality of distributions conducting Kolmogorov-Smirnov tests of equality of distributions.
term insured and severely disabled individuals. These types of old-age pensions are typically available “early”, i.e. at age 60 or 63.
Dominance According to Socio-Economic Background
We use parental educational attainment as a proxy for socio-economic background. Figure 4.4 plots the CDFs of retirement age for individuals whose fathers achieved a secondary education degree (i.e. German “Abitur” or “Fachoberstufe”) and individuals whose fathers did not achieve such a degree (panel (a)). With an exception for the tails, the CDF of individuals born to highly educated fathers lies below the CDF of individuals born to less educated fathers across the complete distribution of retirement age. The largest difference between highly and less educated fathers is 0.286, the largest difference between less and highly educated fathers is zero. The distributions are tested to be significantly different from each other. Hence, the CDF of individuals born to highly educated fathers first order dominates the CDF of individuals born to less educated fathers.
Figure 4.4 illustrates the analogous CDFs with respect to maternal educational attain- ment (panel (b)). The overall picture is similar to the one based on paternal education. Again, the CDFs are significantly different with the CDF of individuals born to mothers with a secondary degree lying below the CDF of individuals born to mothers without such a degree. Both the findings based on paternal and maternal education indicate that equality of opportunity is violated.
Dominance According to Personal Characteristics
We consider sex and body height as personal characteristics, which are attributes that individuals clearly cannot be held responsible for. Figure 4.4 illustrates CDFs of age at retirement by specific circumstances, where sex is displayed in panel (c). While the overall shapes of the distributions appear to be quite similar, the lines diverge between ages 60 and 65, implying that females enter retirement earlier than males. Table 4.2 reports all results of according stochastic dominance tests for equality of distribution by specific circumstances. The largest difference between the distribution functions is 0.215. The maximum difference between females and males is negative (-0.004), which indicates that the CDF of males lies below the CDF of females at any possible retirement age. The small p-value for the combined test indicates that the distributions of males and females are significantly different. Hence, the CDF of males first order
Figure 4.4: Cumulative Distribution Function of Retirement Age by Circumstances. 0 .2 .4 .6 .8 1 Frequency 40 50 60 70 80 Retirement Age
No Secondary Education Secondary Education
(a) Father’s Schooling
0 .2 .4 .6 .8 1 Frequency 40 50 60 70 80 Retirement Age
No Secondary Education Secondary Education
(b) Mother’s Schooling 0 .2 .4 .6 .8 1 Frequency 40 50 60 70 80 Retirement Age Female Male (c) Sex 0 .2 .4 .6 .8 1 Frequency 40 50 60 70 80 Retirement Age Small Tall (d) Body Height 0 .2 .4 .6 .8 1 Frequency 40 50 60 70 80 Retirement Age Rural Urban (e) Urbanisation
Source: Own calculations based on SOEP (1984-2012). Note: Graphs are smoothed by averaging
cumulative distributions on the level of age in years.
dominates the CDF of females. However, differences in retirement age by sex cannot generally be considered as illegitimate inequalities since males and females are subject to different retirement rules and social norms and are therefore of limited comparability. In contrast, retirement rules are independent of body height. Height is a proxy for
Table 4.2: Tests for Stochastic Dominance at First Order: Differences in Distribution of Retirement Age by Circumstances.
Test Maximum Difference p-value Corrected p-value
By Father’s Schooling No Secondary Education 0.286 0.000 Secondary Education 0.000 1.000 Combined 0.286 0.000 0.000 By Mother’s Schooling No Secondary Education 0.273 0.000 Secondary Education -0.024 0.000 Combined 0.273 0.000 0.000 By Sex Female 0.215 0.000 Male -0.004 0.185 Combined 0.215 0.000 0.000 By Body Height Small 0.209 0.000 Tall -0.009 0.001 Combined 0.209 0.000 0.000 By Urbanisation Rural 0.078 0.000 Urban -0.016 0.000 Combined 0.078 0.000 0.000
Source: Own calculation based on SOEP (1984-2012).
tion by others which may both provoke differences in career chances. In a comparison of CDFs by body height, first order stochastic dominance would clearly imply the presence of inequality of opportunity in the timing of retirement. Figure 4.4 (panel d) illustrates the distribution functions for individuals who differ by body height, where the sample mean of body height has served as a threshold to assign individuals to the two groups. Again, the distributions appear very similar with a divergence between ages 60 and 65; the maximum difference amounts to 0.209. The largest difference between small and tall individuals is negative (-0.009), which implies that the CDF of tall individuals is below the CDF of small individuals at any retirement age. According to the combined test, the CDFs are significantly different from each other. The conditions for first order stochastic dominance are fulfilled, suggesting the presence of inequality of opportunity in favour of tall people.
Dominance According to Urbanisation in Area of Residence During Child- hood
In contrast to personal characteristics and socio-economic background, visible differ- ences in retirement age are not as distinctive when individuals who grew up in areas of different degrees of urbanisation are compared. Figure 4.4 suggests that the CDFs about coincide at most retirement ages (panel (e)). There is a slight divergence be- tween ages 60 and 63. The stochastic dominance test reveals that at any retirement age the CDF of individuals who grew up in urban areas lies below the CDF of individuals who grew up in rural areas. The largest difference amounts to 0.078 and the CDFs are estimated to be significantly different. Hence, although the visible differences appear rather small when comparing CDFs by urbanisation, the urban-CDF dominates the rural-CDF at first order, suggesting inequality of opportunity in age at retirement as well for this characteristic.
4.4.3 Decomposition of the Difference in Retirement Age by Physical